Investment in internal auditing and governance characteristics

Evidence from statutory internal auditors in South Korea

Hyun Young Park, Ho Young Lee, Jin Wook Kim

Research output: Contribution to journalArticle

Abstract

Purpose: Based on 3,775 firm-year observations from 2009 to 2013 using publicly available disclosure data for Korean listed firms, this study examines whether and how firm-level governance characteristics are associated with investment in internal auditing proxied by compensation and the number of statutory internal auditors. Design/methodology/approach: The authors investigate the association between governance characteristics and investment in internal auditing proxied by compensation and the number of statutory internal auditors. Findings: The authors find that firms with greater ownership of the largest shareholders and with a higher proportion of outside directors invest more in internal auditing. These results indicate that firms with higher incentive and demand for monitoring are more likely to invest more in internal auditing. The authors further find that the positive effect of the largest shareholder ownership (board independence) on investment in internal auditing is attenuated in firms with greater board independence (ownership of the largest shareholders) suggesting that the complementary effect of the two governance mechanisms associated with internal auditing weakens as they function simultaneously. Research limitations/implications: The results provide regulators and investors with a clear picture of the governance characteristics of firms associated with investment in internal auditing. The results imply that both the largest shareholders and the outside board of directors play a significant role in resource allocation in internal auditing within a firm. The effect of allocation, however, can be attenuated contingent upon the combined characteristics of governance mechanisms. Originality/value: Using large amounts of public archival data, this study adds to the extant literature on firm characteristics associated with investment in internal auditing. This study also contributes to the literature by expanding the scope of research on executive compensation to the locus of statutory internal auditors.

Original languageEnglish
Pages (from-to)623-648
Number of pages26
JournalManagerial Auditing Journal
Volume34
Issue number5
DOIs
Publication statusPublished - 2019 May 7

Fingerprint

Auditors
Internal governance
South Korea
Internal auditing
Large shareholders
Ownership
Governance
Governance mechanisms
Board independence
Firm characteristics
Outside directors
Design methodology
Board of directors
Proportion
Monitoring
Investors
Disclosure
Resource allocation
Executive compensation
Incentives

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)
  • Organizational Behavior and Human Resource Management

Cite this

@article{1d12bb277d1b4efca3c87d0151dad348,
title = "Investment in internal auditing and governance characteristics: Evidence from statutory internal auditors in South Korea",
abstract = "Purpose: Based on 3,775 firm-year observations from 2009 to 2013 using publicly available disclosure data for Korean listed firms, this study examines whether and how firm-level governance characteristics are associated with investment in internal auditing proxied by compensation and the number of statutory internal auditors. Design/methodology/approach: The authors investigate the association between governance characteristics and investment in internal auditing proxied by compensation and the number of statutory internal auditors. Findings: The authors find that firms with greater ownership of the largest shareholders and with a higher proportion of outside directors invest more in internal auditing. These results indicate that firms with higher incentive and demand for monitoring are more likely to invest more in internal auditing. The authors further find that the positive effect of the largest shareholder ownership (board independence) on investment in internal auditing is attenuated in firms with greater board independence (ownership of the largest shareholders) suggesting that the complementary effect of the two governance mechanisms associated with internal auditing weakens as they function simultaneously. Research limitations/implications: The results provide regulators and investors with a clear picture of the governance characteristics of firms associated with investment in internal auditing. The results imply that both the largest shareholders and the outside board of directors play a significant role in resource allocation in internal auditing within a firm. The effect of allocation, however, can be attenuated contingent upon the combined characteristics of governance mechanisms. Originality/value: Using large amounts of public archival data, this study adds to the extant literature on firm characteristics associated with investment in internal auditing. This study also contributes to the literature by expanding the scope of research on executive compensation to the locus of statutory internal auditors.",
author = "Park, {Hyun Young} and Lee, {Ho Young} and Kim, {Jin Wook}",
year = "2019",
month = "5",
day = "7",
doi = "10.1108/MAJ-10-2017-1689",
language = "English",
volume = "34",
pages = "623--648",
journal = "Managerial Auditing Journal",
issn = "0268-6902",
publisher = "Emerald Group Publishing Ltd.",
number = "5",

}

Investment in internal auditing and governance characteristics : Evidence from statutory internal auditors in South Korea. / Park, Hyun Young; Lee, Ho Young; Kim, Jin Wook.

In: Managerial Auditing Journal, Vol. 34, No. 5, 07.05.2019, p. 623-648.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Investment in internal auditing and governance characteristics

T2 - Evidence from statutory internal auditors in South Korea

AU - Park, Hyun Young

AU - Lee, Ho Young

AU - Kim, Jin Wook

PY - 2019/5/7

Y1 - 2019/5/7

N2 - Purpose: Based on 3,775 firm-year observations from 2009 to 2013 using publicly available disclosure data for Korean listed firms, this study examines whether and how firm-level governance characteristics are associated with investment in internal auditing proxied by compensation and the number of statutory internal auditors. Design/methodology/approach: The authors investigate the association between governance characteristics and investment in internal auditing proxied by compensation and the number of statutory internal auditors. Findings: The authors find that firms with greater ownership of the largest shareholders and with a higher proportion of outside directors invest more in internal auditing. These results indicate that firms with higher incentive and demand for monitoring are more likely to invest more in internal auditing. The authors further find that the positive effect of the largest shareholder ownership (board independence) on investment in internal auditing is attenuated in firms with greater board independence (ownership of the largest shareholders) suggesting that the complementary effect of the two governance mechanisms associated with internal auditing weakens as they function simultaneously. Research limitations/implications: The results provide regulators and investors with a clear picture of the governance characteristics of firms associated with investment in internal auditing. The results imply that both the largest shareholders and the outside board of directors play a significant role in resource allocation in internal auditing within a firm. The effect of allocation, however, can be attenuated contingent upon the combined characteristics of governance mechanisms. Originality/value: Using large amounts of public archival data, this study adds to the extant literature on firm characteristics associated with investment in internal auditing. This study also contributes to the literature by expanding the scope of research on executive compensation to the locus of statutory internal auditors.

AB - Purpose: Based on 3,775 firm-year observations from 2009 to 2013 using publicly available disclosure data for Korean listed firms, this study examines whether and how firm-level governance characteristics are associated with investment in internal auditing proxied by compensation and the number of statutory internal auditors. Design/methodology/approach: The authors investigate the association between governance characteristics and investment in internal auditing proxied by compensation and the number of statutory internal auditors. Findings: The authors find that firms with greater ownership of the largest shareholders and with a higher proportion of outside directors invest more in internal auditing. These results indicate that firms with higher incentive and demand for monitoring are more likely to invest more in internal auditing. The authors further find that the positive effect of the largest shareholder ownership (board independence) on investment in internal auditing is attenuated in firms with greater board independence (ownership of the largest shareholders) suggesting that the complementary effect of the two governance mechanisms associated with internal auditing weakens as they function simultaneously. Research limitations/implications: The results provide regulators and investors with a clear picture of the governance characteristics of firms associated with investment in internal auditing. The results imply that both the largest shareholders and the outside board of directors play a significant role in resource allocation in internal auditing within a firm. The effect of allocation, however, can be attenuated contingent upon the combined characteristics of governance mechanisms. Originality/value: Using large amounts of public archival data, this study adds to the extant literature on firm characteristics associated with investment in internal auditing. This study also contributes to the literature by expanding the scope of research on executive compensation to the locus of statutory internal auditors.

UR - http://www.scopus.com/inward/record.url?scp=85066905037&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85066905037&partnerID=8YFLogxK

U2 - 10.1108/MAJ-10-2017-1689

DO - 10.1108/MAJ-10-2017-1689

M3 - Article

VL - 34

SP - 623

EP - 648

JO - Managerial Auditing Journal

JF - Managerial Auditing Journal

SN - 0268-6902

IS - 5

ER -